5 2. Background on Medicare, Supplemental Coverage, and TSSD This chapter provides descriptions of the health insurance coverage options available to individuals eligible to participate in the TSSD program. Health Insurance for Military Retirees (Prior to TFL) The enactment of TFL substantially changed the health insurance options available to Medicare-eligible military retirees. The following sections describe options, including Medicare and Medicare supplements, available prior to TFL. Medicare Title XVIII of the Social Security Act, designated “Health Insurance for the Aged and Disabled,” established a health insurance program for aged persons (commonly known as Medicare) to complement the retirement, survivors, and disability insurance benefits under Title II of the Social Security Act. Entitlement for Medicare is specified in 42 CFR 406. Most persons age 65 or over are eligible for Medicare.1 Medicare has traditionally consisted of two parts: Hospital Insurance (Part A) and Supplemental Medical Insurance (Part B). Part A coverage is generally provided automatically, free of premiums, to eligible persons. Beneficiaries must pay deductibles and copayments for inpatient hospital care and copayments for care in skilled nursing facilities. Coverage under Part B is based on voluntary enrollment and payment of a monthly premium ($54 for 2002). Eligible beneficiaries who do not enroll in Part B when they reach age 65 may do so at a later date. However, the Part B premium goes up 10 percent for each year after age 65 the beneficiary was not enrolled. For most outpatient medical services, Part B requires beneficiaries to pay 20 percent coinsurance, except for mental _________________ 1In addition, the following groups also became eligible for Medicare in 1973: persons entitled to Social Security or Railroad Retirement disability for at least 24 months (not applicable to the military retiree population), most persons with end-stage renal disease (ESRD), and certain otherwise noncovered aged persons who elect to pay a premium for coverage. 6 health services, which require 50 percent coinsurance. Medicare does not currently cover outpatient prescription drugs. The Balanced Budget Act (BBA) of 1997 also introduced a third part, sometimes known as Part C, the Medicare+Choice program, which expanded beneficiaries’ options for participation in private-sector health care plans. Supplementing Medicare To address the gaps in Medicare coverage, many Medicare beneficiaries, including Medicare-eligible military beneficiaries, have health insurance coverage that supplements Medicare. They obtain such coverage from a variety of sources, including private Medicare supplemental plans (commonly referred to as “Medigap” plans), plans sponsored by former employers, Medicare+Choice HMOs, Medicaid, and/or other public programs. Private Medigap plans are standardized, with ten different benefit packages, referred to by the consecutive letters A through J.2 All of these Medigap plans eliminate Medicare’s coinsurance for inpatient care under Medicare Part A and outpatient care under Part B. In addition, they also reduce or eliminate out-ofpocket costs for other Medicare-covered services, with the types of services varying by plan; they also extend Medicare’s benefit limits for certain services and/or cover some services that Medicare does not cover, with the types of benefits covered and the scope of coverage limited by the plan. Three of the plans (H through J) provide coverage for prescription drugs, up to a set dollar limit per year. Employer-sponsored supplemental plans serve functions that are similar to those of private Medigap, although they generally include modest (although lower than Medicare’s) cost-sharing requirements. At the same time, employersponsored plans generally include more-comprehensive coverage for prescription drugs than do private Medigap plans. In addition, some Medicare beneficiaries enroll in HMOs under the Medicare+Choice program. Such plans reduce out-of-pocket expenses relative to fee-for-service Medicare; they also may offer additional benefits, such as transportation, eyeglasses, coordination of care, or prescription drugs. Premiums for Medicare+Choice plans tend to be substantially lower than the premiums for ________________ 2 Summary information on the benefits in each of the ten standardized Medigap plans is available at http://www.medicare.gov/mgcompare/Search/StandardizedPlans/ TenStandardPlans.asp. 7 Medigap plans. In recent years, many Medicare HMOs have withdrawn from the market. While most Medicare beneficiaries living in urban areas continue to have a Medicare HMO option, many beneficiaries in less urban or rural areas are not served by a Medicare HMO. Furthermore, even where Medicare HMOs remain available, the relative generosity of their benefits has decreased while the out-ofpocket costs for members have increased. Private Medigap plans require beneficiaries to pay premiums, which vary by type of plan and, for most beneficiaries who enroll after age 65, by age and/or health status. Only three of the ten standardized Medigap policies include any prescription drug coverage; two of these currently have an annual benefit limit of $1,250, and the third has an annual limit of $3,000. We note that, historically, affinity organizations such as The Retired Officers Association and USAA, an association that provides insurance to military members and their families, offered basic Medigap plans to military retirees without medical underwriting. However, these offerings are limited to plans A through G, i.e., those without any prescription drug coverage. Employer-sponsored Medicare supplement plans may also require premiums, but this varies by employer. Medicaid and most other public programs require no premiums, but eligibility is based on beneficiaries’ economic and/or health status. Medicare HMOs may also require premiums, which vary by plan. Distribution of Health Insurance Coverage Among Military Retirees We present the distribution of health insurance patterns for the TSSD population in subsequent sections. However, the two TSSD catchment areas may not be representative of the overall population of Medicare-eligible military beneficiaries, and we know of no definitive information on the nature and prevalence of Medicare supplemental coverage or Medicare+Choice enrollment in that population. For the general Medicare population, data suggest that relatively few Medicare beneficiaries have only Medicare (Table 2.1). For instance, the majority of Medicare beneficiaries whose income is above the poverty line have private supplemental insurance, via either a former employer or a Medigap policy. Roughly 11 percent have only Medicare. We note that Table 2.1 does not address the case of Medicare-eligible military retirees who live in the catchment areas of MTFs and receive care there; such care is provided at no charge to the beneficiary on a space-available basis. Data from RAND’s evaluation of the TRICARE Senior Prime Demonstration (another demonstration conducted in other locations, not to be confused with 8 Table 2.1 Health Insurance of Medicare Beneficiaries Aged 65+, 1997 (% of Medicare Beneficiaries) Employer/retire e Medigap Public Medicare HMO Medicaid Medicare only All Beneficiaries 35 <=100% of Poverty-Line Income 8 100%–200% of Poverty-Line Income 26 >200% of Poverty-Line Income 50 25 2 14 14 10 15 3 6 52 16 28 3 16 13 14 27 1 16 1 5 NOTE: Columns may not sum to 100% due to rounding. The Employer/retiree row includes both beneficiaries who have supplemental insurance from a former employer or union and those who are still working and whose employer is their primary source of insurance. SOURCE: Urban Institute analyses of 1997 Medicare Current Beneficiary Survey, 2001. TSSD) suggests that similar fractions of military retirees and other Medicare beneficiaries, respectively, were enrolled in Medicare+Choice plans in demonstration catchment areas prior to the demonstration.3 It seems plausible that the fraction of military retirees who are covered by employer/retiree benefits may be lower than that for civilian Medicare beneficiaries due to different work histories (i.e., career employment with an employer—the DoD— that did not offer such coverage prior to TFL). RAND’s TRICARE Senior Prime Demonstration evaluation also reported that approximately 7 percent of eligible beneficiaries in demonstration catchment areas were enrolled in Medicare Part A but not Part B because of the cost of Part B and beneficiaries’ intentions to receive care from MTFs. TSSD As noted earlier, TSSD was designed to function as a Medigap policy. Table 2.2 summarizes some of the main features of TSSD, along with the corresponding Medicare features. Eligible beneficiaries could enroll in TSSD beginning on March 1, 2000, with coverage under the demonstration beginning on April 1, 2000. TSSD enrollees could disenroll at any time. The program was scheduled to end on December 31, 2002. However, all beneficiaries eligible for TSSD received pharmacy benefits under the new national pharmacy benefit program on April 1, 2001, and TFL benefits on October 1, 2001. Table 2.2 also summarizes the main features of TFL. ________________ 3 See Farley et al. (2000). Under the Senior Prime Demonstration program, selected MTFs were qualified as Medicare+Choice HMOs, and Medicare-eligible military beneficiaries living in the catchment areas of these MTFs were eligible to enroll in these plans. 9 Table 2.2 Comparison of Plan Features for Medicare-Eligible Military Beneficiaries Medicare (Fee-For-Service) a No DoDsponsored benefit TRICARE Senior Supplement Yes TRICARE For Life Yes Main eligibility requirements N/A Age 65 or over and enrolled in Medicare Part B Age 65 or over and enrolled in Medicare Part B Enrollment required Yes, for Part B Yes No Premiums None for Part A; $54/month for $48/month (and Part B participation is required) None (but Part B participation is required) Characteristic Medicare supplemental coverage Part B b Outpatient costsharing $100 annual deductible, plus 20% coinsurance for most outpatient care (50% for mental health care) Covers most Medicare costsharing for covered services (coverage is generally higher for TRICARE network providers) Covers all Medicare cost-sharing for TRICARE-covered services Inpatient costsharing Per-admission deductible for hospital care, plus copayments per day for stays longer than 60 days; also copayments for skilled nursing care for stays longer than 20 days Covers most Medicare costsharing for covered services Covers all Medicare cost-sharing for TRICARE-covered services Coverage for TRICARE benefits not covered by Medicare N/A Yes, with TRICARE cost-sharing rules Yes, with TRICARE cost-sharing rules Pharmacy benefits None under Medicare; no cost for prescriptions filled at MTF pharmacies; Base realignment and closure (BRAC) beneficiaries have access to NMOP Yes, via NMOP and TRICARE network pharmacies (TSSD beneficiaries may not use BRAC drug benefits) Yes, via new pharmacy benefit program; no cost for prescriptions filled at MTF pharmacies 10 Table 2.2—Continued Medicare (Fee-For-Service) a No TRICARE Senior Supplement Yes; lower costsharing when using TRICARE providers versus non-TRICARE Medicare provider Automatic coordination of benefits with Medicare N/A Yes, for TRICARE network providers; No, for non-TRICARE providers (provider would bill patients for the balance due and patients would file claims with TSSD) Yes Catastrophic payment cap No Yes: $7,500 under TRICARE Standard Yes: $3,000 Access to MTF On spaceavailable basis, for beneficiaries in MTF catchment area; care provided at no cost to beneficiary Not permitted for TSSD enrollees On space-available basis, for beneficiaries in MTF catchment area; care provided at no cost to beneficiary Characteristic Provider network clinical care c TRICARE For Life None for Medicarecovered services; lower cost-sharing when using TRICARE providers for other services covered by TRICARE aRefers to coverage under fee-for-service Medicare in the absence of supplemental insurance benefits. bFor beneficiaries who did not enroll in Part B at age 65 but join later, their Part B premium is increased by 10% for each year after age 65 that they were not enrolled. c Access to MTF primary care will be enhanced for participants in the DoD’s new TRICARE Plus program. In addition, the temporary TRICARE Senior Prime Demonstration program provided comprehensive access to MTF care for participants. Premiums and Cost-Sharing TSSD benefits were more generous than any of the standard Medigap plans, particularly in regard to pharmacy benefits. TSSD premiums were $48 per month. In general, this premium amount was less than beneficiaries would have to pay for the most comparable private Medigap policy (Plan J), even if they enrolled at age 65 and were exempt from medical underwriting. 11 As a Medicare supplemental policy, TSSD covered most cost-sharing that beneficiaries would face under Medicare for Medicare-covered services. 4 The exact level of benefit depended on whether beneficiaries received care from TRICARE network providers (i.e., under TRICARE Extra) or from an authorized nonnetwork provider (i.e., under TRICARE Standard). For care from TRICARE network providers, TSSD would pay any cost-sharing remaining after Medicare (and any applicable Medigap policy) had processed the claim, up to the amount TRICARE would have paid if TRICARE had been primary payer. For care from nonnetwork providers, TSSD would pay an amount up to 115 percent of the TRICARE allowable charge, minus payments from Medicare and any applicable Medigap policy, up to the amount TRICARE would have paid if TRICARE had been the primary payer. TRICARE would bear no responsibility for billed charges in excess of 115 percent of the TRICARE allowable charge from nonnetwork providers. Beneficiaries would also need to meet applicable Medicare and TRICARE deductibles for outpatient care. In addition, TSSD provided coverage for services that were covered by TRICARE but not Medicare, with TRICARE cost-sharing rules. TSSD also provided pharmacy benefits with modest cost-sharing rules and no annual benefit maximum (unlike private Medigap plans). Other TSSD Characteristics Several other characteristics of TSSD are worth highlighting because of their potential impact on enrollment: • First, under TSSD (but not TFL), beneficiaries were required to forgo access to MTFs. However, the demonstration catchment areas were required to be located outside any MTF catchment area. In practice, most eligible beneficiaries were 100 or more miles from the nearest MTF, although a number of beneficiaries indicated that they drove long distances to use MTF pharmacies (see Appendix F). • Second, also unlike TFL, Medicare did not coordinate claims with TSSD automatically as it does with most private and employer-sponsored Medigap plans. For patients receiving care from TRICARE network providers, the provider would file the claims. However, for patients receiving care from nonnetwork providers, in general providers would bill patients for the _________________ 4For TSSD enrollees who retained private or employer-sponsored Medigap coverage, TSSD would serve as third the payer, after the Medicare and the Medigap policy. 12 balance of the bill (after Medicare’s payment) and patients would have to file claims with TSSD themselves. • Finally, TSSD was a temporary program, and beneficiaries had no guarantee that it, or any analogous program, would be available at the end of the demonstration period (indeed, TFL was not enacted until well into the first year of TSSD, and it may not have begun to be widely understood by beneficiaries until the spring of 2001 with the dissemination of materials from the DoD and retiree organizations). Beneficiaries with private or employer-sponsored Medigap policies who enrolled in TSSD thus faced the decision of whether to continue their prior coverage and pay for both, or give up their prior coverage in favor of TSSD. In the latter case, beneficiaries risked the possibility that they would not be able to return to their prior plan or other comparable coverage at the end of the demonstration period, or that they would face medical underwriting if they did return. The BBA of 1997 specifies conditions under which Medicare beneficiaries who enroll in a Medicare+Choice plan or a “similar organization operating under a demonstration project authority” are guaranteed access to certain Medigap plans. Text referring to these conditions was included in TSSD documents for beneficiaries, also available from the TRICARE Web site. However, it is likely that the provisions of the 1997 BBA do not apply to TSSD because it was not conducted under the demonstration authority of the Social Security Act (of which Medicare is a part) and because the relevant section (722) of the 1999 NDAA makes no mention of Medigap reinstatement.5 This issue is discussed in further detail in Chapter 4, particularly in the context of the focus groups we conducted with eligible beneficiaries. Demonstration Sites The 1999 NDAA specified that TSSD be conducted in two separate areas selected by the Secretary of Defense. Both areas were to be outside the catchment areas of any MTFs. One area was to have no Medicare+Choice plan coverage while the other was to have one or more of such plans available to Medicare beneficiaries. In practice, areas in and around Cherokee County, Texas, were selected as the area without Medicare managed-care penetration, while areas in and around Santa Clara County, California, were selected as the area with active ________________ 5This section is in specific contrast to section 721, which authorized the parallel FEHBP demonstration program in a section titled “Application of Medigap Protections to (FEHBP) Demonstration Project Enrollees.” 13 Medicare+Choice plans. Cherokee County, southeast of Dallas, is relatively rural whereas Santa Clara County, close to San Jose, is relatively urban. Table 2.3 provides information on enrollment of Medicare beneficiaries in Medicare+ Choice HMOs in Santa Clara County in March 2000. See Appendix G for maps of the two TSSD demonstration areas. As required, neither demonstration area is in the catchment area (i.e., within approximately 40 miles) of an MTF. The closest MTF to the Cherokee County area is at Barksdale Air Force Base in Louisiana, with an average travel distance of more than 90 miles (although some parts of the demonstration area are within 50 miles of Barksdale). The closest MTF to the Santa Clara County area is at Travis Air Force Base, with an average travel distance of more than 75 miles. We note that the Santa Clara demonstration area includes the Department of Veterans Affairs (VA) Palo Alto Medical Center. Parts of the Cherokee County area are within 25 miles of the VA’s Lufkin Clinic; the closest VA Medical Center is in Shreveport, Louisiana.6 We did not formally assess the availability of TRICARE network providers in either demonstration area. However, we used the on-line TRICARE provider directory (www.tricare.osd.mil/ProviderDirectory/) to search for family practice physicians, cardiologists, and oncologists in randomly sampled zip codes in the Table 2.3 Medicare+Choice HMO Enrollment, Santa Clara County Plan Name Aetna US Healthcare of California Blue Cross of California California Physicians’ Services Corporation Health Net Kaiser Foundation Pacificare of California Number of Enrollees 2,222 1,665 431 6,167 37,832 23,917 Percentage of Percentage of Medicare Medicare+Choice Eligibles Enrollees 1.3 3.2 1.0 2.4 0.3 0.6 3.6 22.1 14.0 8.8 54.0 34.1 SOURCE: Data on the general Medicare population for March 2000 is from the Health Care Financing Administration, http://www.hcfa.gov/medicare/mgd-rept.htm. _________________ 6 We note that only a small subset of the population eligible for TSSD receive substantial amounts of care through the VA system. Spouses of veterans do not generally qualify for VA health care. Veterans are assigned a priority score based on the presence of service-connected disability, the nature of military service, and income. Roughly 37 percent of the nation’s 26 million veterans have service-connected disabilities and/or sufficiently low incomes to receive free or very low-cost care through the VA (Department of Veterans Affairs, 1998). However, this fraction is lower among military retirees, due to their military pensions. Other veterans may use the VA but are required to pay substantial amounts for care comparable to Medicare copays and deductibles. 14 demonstration areas. In the Cherokee County area, it appeared that network providers were mainly available in the relatively large towns (e.g., Longview, Palestine, Nacogdoches) but not in more rural areas.7 In the Santa Clara area, TRICARE network providers appeared to be relatively more prevalent, particularly in the San Jose/Palo Alto area where beneficiaries were most concentrated; provider density decreased substantially in the southern areas of the Santa Clara demonstration area, e.g., around Gilroy and Hollister. ________________ 7We note that these three towns are relatively far apart, e.g., 90 miles between Palestine and Longview, 78 miles between Palestine and Nacogdoches, and 71 miles between Longview and Nacogdoches.